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IN A SCENE REMINISCENT OF THE COLD WAR, U.S F-15 jet fighters have today been tailing Russian bombers in the Arctic skies. According to a report from the Interfax news agency "Russia has stepped up its military presence in the Arctic, as international competition and tension over the resource-rich region has increased."
DISPUTES OVER RESOURCES are the most common cause of war. In this case, which is concerned among other things with competing claims to undersea oil exploration rights, Nobel Prize winning game theorist Robert Aumann has provided a neat solution in the form of "equal division of the contested sum" - i.e. agree by negotiation on sovereign rights to specific areas, and where there is disagreement, divide the disputed area equally among the disputants.
AMERICA AND RUSSIA are not the only nations involved, but the principle still holds true, in personal matters as much as in the international arena. Try it. As I show in "Rock, Paper, Scissors", it's mathematically proven to be the fairest way!
FOR MORE BACKGROUND, see my November 9 post:
A REVIEW of “Rock, Paper, Scissors” in this week’s Newsweek (SECTION: PERISCOPE; PAGE TURNER; Pg. 13 Vol. 152 No. 22 BYLINE: Jeneen Interlandi) brilliantly summarizes what the book is about. The author calls it The Science of Working Together, which is a heading that I wish I had thought of. “The trick” she says, in summarizing my conclusions “is to establish an agreement where everyone's self-interest is best served by cooperating.”
ONE STORY from today’s news that illustrates the point concerns an interview with Cuban President Raul Castro conducted by US actor Sean Penn for The Nation. Castro suggests in this interview that that US oil companies could be invited to explore for petroleum reserves in offshore projects in return for the trade embargo being lifted. This is a perfect example of the game theory strategy highlighted in Interlandi’s review.
WILL OBAMA follow the strategy? He has already promised some positive, humanitarian action with regard to Cuba. According to a Reuter’s report by reporter Patrick Markey “Mr Obama has said he will reverse the Bush administration's policies that restricted Cuban Americans visiting Cuba and sending cash to their families there.”
ACCORDING TO THE REUTERS REPORT, Obama is willing to talk to Castro, but would keep the 46-year-old trade embargo as leverage to influence democratic changes in the one-party state. Castro has his own lever, though, in the promise of oil exploration rights. If the two levers combine forces to produce cooperation, then game theory will have done its job.
SEE OTHER POSTS BELOW (AND DO PLEASE COMMENT - YOUR IDEAS AND CRITICISMS WILL BE HIGHLY VALUED, AND WILL BE RESPONDED TO):
- GAME THEORY AND THE CREDIT CRUNCH
- THE CATCH-22 LOGICAL TRAP THAT THREATENS OUR WORLD
GAME THEORY AND THE CREDIT CRUNCH
ACCORDING TO AN EMAIL from Bloomberg.com reviewer Jim Pressley "Your book has incredible relevance on a day when U.S. stocks have fallen to their lowest levels since 2003." He was talking especially about the Ten Top Tips that I offer for using game theory strategies to promote cooperation.
MANY ECONOMISTS have commented on the need for rebuilding trust (in this case, between financial institutions). The trust needs to have a genuine basis of credible commitment from all sides, which means (as the economists have pointed out) that in this case that there needs to be transparency in revealing the true value of the assets used to back loans. But how might it be achieved?
GAME THEORY has a lot to say on this topic, and many of my Ten Top Tips could come into play. Here is one suggestion, based on my Number Ten Top Tip - divide large groups into smaller ones (and build co-operation up from this base). Game theory shows that very large groups of individuals or institutions have a lower chance than smaller groups of coordinating their actions to produce a cooperative outcome, because repeated interactions between individual pairs within the group are less common, and other restraints on cheating are often less powerful. One way to re-establish trust, then, is to begin with groups consisting of a small number of institutions. Trust is easier to establish in such a small group. Maybe, for example, a pair of institutions will be more willing to reveal their assets to each other because they have a relationship that extends beyond the market. If one of them had a similar relationship with a third institution, then the group could be enlarged from two to three (cf. my Tip Two - bring an extra player in) and so on progressively. If, at any stage, trust in one of those institutions turned out to be misplaced, my Tip One - Stay if you Win, Shift if you Lose comes into play, which in this case means cutting the offending institution out of the network. Keeping the network to a finite size would also mean that repeated interactions would be more common (Tip Three - set up some form of reciprocity), and an institution’s reputation within the network would suffer if it did not deliver (Tip Four - restrict your own future options so that you will lose out if you defect on cooperation). Finally, negotiators in the not-too-distant future may be able to use the remarkable properties of quantum computers (as I describe in chapter eight of "Rock, Paper, Scissors) to “read each others' minds” – the ultimate in transparency, and perhaps the ultimate in removing incentives to cheat.
ALL OF THIS is not to say that game theory provides complete answers, but it does suggest sensible directions AND PROVIDES GOOD REASONS FOR FOLLOWING THEM, BASED ON THE REAL WAY IN WHICH PEOPLE BEHAVE IN PURSUIT OF THEIR OWN BEST INTERESTS. Maybe this is the best that we can hope for.
FOR MORE BACKGROUND, see my November 9 post:
GAME THEORY is all around us. Despite its name, it is not just about games – it is about the strategies that we use every day in our interactions with other people. Many of these strategies involve a hidden, Catch-22 logical trap. It is a constant, if often unrecognized, presence in family arguments, neighbourhood disputes and day-to-day social interactions, as well as in the global issues that we now face, such as global warming, resource depletion, terrorism and war. Here I analyze daily news stories where I show how the trap arises, the damage that it causes and, most importantly, how we can cooperate to overcome it.THE TRAP was discovered by Nobel Prize-winning mathematician John Nash, the schizophrenic anti-hero of the film “A Beautiful Mind”. Once you catch on to it, you will start to see it everywhere. Paul McCartney and Heather Mills were caught by it during their divorce. So were Barrack Obama and Hilary Clinton during the race for the democratic nomination. So were the fishermen who over-fished the Newfoundland fisheries. So are we all.
THE TRAP arises whenever we could cooperate for mutual benefit, but where one of us sees that we could do better by cheating on the cooperation. So we could, until the other party starts to think the same way. Then we both, quite logically, cheat, but somehow we end up in a worse position than if we had maintained the cooperation in the first place. We are trapped in a vicious, Catch-22 circle of logic.
MY BOOK ROCK, PAPER, SCISSORS shows how the trap works, and what we can do to get out of it. Here I will reinforce the book with daily examples from the news which show how pervasive the trap is, and how important it is to understand and use the escape routes that the book reveals.
